-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BOuONs7ekIkb5VQ1oFj60SeWi2yg9HIrJRQONLo8NkquPxMfXM6h3TOAGzeM9pzM u8L/+3qlvGPGFJFQiL+HNA== 0000950133-99-003530.txt : 19991115 0000950133-99-003530.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950133-99-003530 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL DYNAMICS CORP CENTRAL INDEX KEY: 0000040533 STANDARD INDUSTRIAL CLASSIFICATION: SHIP & BOAT BUILDING & REPAIRING [3730] IRS NUMBER: 131673581 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03671 FILM NUMBER: 99749850 BUSINESS ADDRESS: STREET 1: 3190 FAIRVIEW PARK DRIVE CITY: FALLS CHURCH STATE: VA ZIP: 22042 BUSINESS PHONE: 7038763000 MAIL ADDRESS: STREET 1: 3190 FAIRVIEW PARK DR CITY: FALLS CHURCH STATE: VA ZIP: 22042 10-Q 1 GENERAL DYNAMICS CORPORATION FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-1673581 - --------------------------------------------- ---------------- (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NO.) 3190 FAIRVIEW PARK DRIVE, FALLS CHURCH, VIRGINIA 22042-4523 - ------------------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (703) 876-3000 -------------------------------------------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO . --- --- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. COMMON STOCK, $1 PAR VALUE - OCTOBER 29, 1999 200,973,331 ================================================================================ 2 GENERAL DYNAMICS CORPORATION INDEX
PART I - FINANCIAL INFORMATION PAGE - ------------------------------ ---- Item 1 - Consolidated Financial Statements Consolidated Balance Sheet 2 Consolidated Statement of Earnings (Three Months) 3 Consolidated Statement of Earnings (Nine Months) 4 Consolidated Statement of Cash Flows 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis 18 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 24 PART II - OTHER INFORMATION - --------------------------- Item 1 - Legal Proceedings 25 Item 4 - Submission of Matters to a Vote of Security Holders 25 Item 6 - Exhibits and Reports on Form 8-K 26 SIGNATURE 26 - ---------
1 3 PART I ITEM 1. FINANCIAL STATEMENTS GENERAL DYNAMICS CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) (Dollars in millions)
October 3 December 31 1999 1998 ------------- ------------- ASSETS - ------ CURRENT ASSETS: Cash and equivalents $ 69 $ 165 Marketable securities - 93 ------------- ------------- 69 258 Accounts receivable 841 580 Contracts in process 1,410 952 Inventories 1,032 804 Other current assets 392 391 ------------- ------------- Total Current Assets 3,744 2,985 ------------- ------------- NONCURRENT ASSETS: Leases receivable - finance operations 174 181 Real estate held for development 63 65 Property, plant and equipment, net 1,040 901 Intangible assets 2,623 1,784 Other assets 387 235 ------------- ------------- Total Noncurrent Assets 4,287 3,166 ------------- ------------- $ 8,031 $ 6,151 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Short-term debt, including current portion of long-term debt $ 1,153 $ 77 Short-term debt - finance operations 19 58 Accounts payable 474 477 Other current liabilities 1,992 1,760 ------------- ------------- Total Current Liabilities 3,638 2,372 ------------- ------------- NONCURRENT LIABILITIES: Long-term debt 164 453 Long-term debt - finance operations 69 82 Other liabilities 1,133 829 Commitments and contingencies (See Note M) ------------- ------------- Total Noncurrent Liabilities 1,366 1,364 ------------- ------------- SHAREHOLDERS' EQUITY: Common stock, including surplus 495 484 Retained earnings 3,214 2,639 Treasury stock (675) (706) Accumulated other comprehensive loss (7) (2) ------------- ------------- Total Shareholders' Equity 3,027 2,415 ------------- ------------- $ 8,031 $ 6,151 ============= =============
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement. 2 4 GENERAL DYNAMICS CORPORATION CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (Dollars in millions, except per share amounts)
Three Months Ended ----------------------------------------------- October 3 September 27 1999 1998 ------------- ------------- NET SALES $ 2,215 $ 1,798 OPERATING COSTS AND EXPENSES 1,860 1,555 ------------- ------------- OPERATING EARNINGS 355 243 Interest expense, net (6) (3) Other (expense) income, net (44) 3 ------------- ------------- EARNINGS BEFORE INCOME TAXES 305 243 Provision for income taxes 121 84 ------------- ------------- NET EARNINGS $ 184 $ 159 ============= ============= NET EARNINGS PER SHARE: Basic $ .92 $ .79 ============= ============= Diluted $ .91 $ .78 ============= ============= DIVIDENDS PER SHARE $ .24 $ .22 ============= ============= SUPPLEMENTAL INFORMATION: General and administrative expenses included in operating costs and expenses $ 139 $ 117 ============= =============
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement. 3 5 GENERAL DYNAMICS CORPORATION CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (Dollars in millions, except per share amounts)
Nine Months Ended ----------------------------------------------- October 3 September 27 1999 1998 ------------- ------------- NET SALES $ 6,304 $ 5,190 OPERATING COSTS AND EXPENSES 5,429 4,527 ------------- ------------- OPERATING EARNINGS 875 663 Interest expense, net (17) (11) Other (expense) income, net (39) 6 ------------- ------------- EARNINGS BEFORE INCOME TAXES 819 658 PROVISION FOR INCOME TAXES R&E Tax Credit (165) - Provision 302 229 ------------- ------------- 137 229 ------------- ------------- NET EARNINGS $ 682 $ 429 ============= ============= NET EARNINGS PER SHARE: Basic $ 3.42 $ 2.15 ============= ============= Diluted $ 3.38 $ 2.12 ============= ============= DIVIDENDS PER SHARE $ .72 $ .66 ============= ============= SUPPLEMENTAL INFORMATION: General and administrative expenses included in operating costs and expenses $ 401 $ 354 ============= =============
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement. 4 6 GENERAL DYNAMICS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in millions)
Nine Months Ended ----------------------------------------------- October 3 September 27 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 682 $ 429 Adjustments to reconcile net earnings to net cash provided by continuing operations - Depreciation, depletion and amortization 140 116 Recognition of pension gains previously deferred (126) - Revaluation of undeveloped coal reserves and equipment 61 - Amortization of debt issuance costs on debt repaid 7 - Decrease (Increase) in assets, net of effects of business acquisitions- Marketable securities 45 (39) Accounts receivable (63) 28 Contracts in process (98) (198) Inventories (317) (94) Other current assets 23 4 Increase (Decrease) in liabilities, net of effects of business acquisitions- Accounts payable and other current liabilities (105) 59 Customer deposits 27 (78) Current income taxes 171 (9) Deferred income taxes 48 94 Other, net (20) (9) ------------- ------------- Net cash provided by continuing operations 475 303 Net cash used by discontinued operations (5) (11) ------------- ------------- Net Cash Provided by Operating Activities 470 292 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions (1,130) (256) Purchases of available-for-sale securities (26) (439) Sales/maturities of available-for-sale securities 75 293 Capital expenditures (117) (105) Proceeds from sale of assets 13 16 Proceeds from sale of real estate held for development - 74 Other (1) (4) ------------- ------------- Net Cash Used by Investing Activities (1,186) (421) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from commercial paper issuances 1,141 - Repayments of other debt, net (370) (117) Repayments of debt - finance operations (53) (12) Dividends paid (88) (81) Purchases of common stock (59) (223) Proceeds from option exercises 49 43 Other - (2) ------------- ------------- Net Cash Provided (Used) by Financing Activities 620 (392) ------------- ------------- NET DECREASE IN CASH AND EQUIVALENTS (96) (521) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 165 643 ------------- ------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 69 $ 122 ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments for: Federal income taxes $ 246 $ 82 Interest (including finance operations) $ 36 $ 35
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement. 5 7 GENERAL DYNAMICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in millions, except per share amounts) (A) Basis of Preparation The unaudited consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. The unaudited consolidated financial statements give retroactive effect to the acquisition by General Dynamics Corporation (General Dynamics) of Gulfstream Aerospace Corporation (Gulfstream) on July 30, 1999, which has been accounted for as a pooling of interests as described in Note D. The consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of operations of Gulfstream. In addition, certain prior year amounts have been reclassified to conform to the current year presentation. The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the company believes that the disclosures included herein are adequate to make the information presented not misleading. Operating results for the three- and nine-month periods ended October 3, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. These unaudited consolidated financial statements should be read in conjunction with the supplemental consolidated financial statements for the year ended December 31, 1998 and the notes thereto included in the company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 11, 1999, and incorporated herein by reference. In the opinion of the company, the unaudited consolidated financial statements contain all adjustments necessary for a fair statement of the results for the three- and nine-month periods ended October 3, 1999, and September 27, 1998. (B) Translation of Foreign Currencies Local currencies have been determined to be functional currencies for the company's international operations. Foreign currency balance sheets are translated at the end-of-period exchange rates and earnings statements at the average exchange rates for each period. The resulting foreign currency translation adjustments are included in the calculation of other comprehensive income and are included in the equity section on the Consolidated Balance Sheet. (C) Comprehensive Income Comprehensive income was $182 and $157 for the three-month period and $677 and $426 for the nine-month period ended October 3, 1999, and September 27, 1998, respectively. 6 8 (D) Acquisitions Pooling of Interests Method On July 30, 1999, the company acquired Gulfstream through a merger of a subsidiary of the company into Gulfstream. As a result, the holders of Gulfstream common stock became entitled to receive one share of the company's common stock for each Gulfstream share. The common stock of Gulfstream was traded on the New York Stock Exchange through the close of business on July 30, 1999, at which time there were 72,165,645 shares of Gulfstream common stock outstanding. An additional 4.1 million shares have been reserved for issuance upon the exercise of stock options which, prior to the acquisition, had been options to purchase Gulfstream common stock. Gulfstream is a leading designer, developer, manufacturer and marketer of advanced business jet aircraft. The acquisition was accounted for as a pooling of interests, and, accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of operations of Gulfstream. In connection with the acquisition, the company recorded a charge to earnings of $36 (before-tax) for related costs, consisting of investment banking, legal, bank fees, accounting, printing and regulatory filing fees. Also in connection with the acquisition, General Dynamics merged the two companies' commercial pension plans. As a result of the merger of these plans, the company recognized previously deferred gains on General Dynamics commercial pension plan, totaling $126 (before-tax). The pre-acquisition results of operations for the separate companies and the combined amounts presented in the consolidated financial statements are as follows:
Six Months Three Months Nine Months Ended Ended Ended July 4, 1999 September 27, 1998 September 27, 1998 ------------ ------------------ ------------------ Net sales: General Dynamics $ 2,756 $ 1,172 $ 3,504 Gulfstream 1,333 626 1,686 ----- --- ----- Combined $ 4,089 $ 1,798 $ 5,190 ===== ====== ======
Six Months Three Months Nine Months Ended Ended Ended July 4, 1999 September 27, 1998 September 27, 1998 ------------ ------------------ ------------------ Net earnings: General Dynamics $ 370 $ 94 $ 268 Gulfstream 128 65 161 --- -- --- Combined $ 498 $ 159 $ 429 === ==== ====
7 9 In connection with the acquisition of Gulfstream, General Dynamics entered into a registration agreement with three investment partnerships affiliated with Forstmann Little & Co. and the directors and executive officers of Gulfstream who owned shares of Gulfstream stock. The registration agreement provides, among other things, that General Dynamics will, upon request and with certain limitations, register for resale the shares of General Dynamics common stock which the partnerships and the directors and executive officers received in the acquisition transaction. For further information, refer to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission on June 24, 1999. Also on July 30, 1999, the company's stockholders approved (1) an amendment to its Certificate of Incorporation to increase the number of authorized shares of common stock from 200 million shares to 300 million shares, and (2) the issuance by the company of its common stock to stockholders of Gulfstream in order to facilitate the acquisition. Purchase Method On September 1, 1999, the company completed the acquisition of three business units comprising GTE Government Systems Corporation, a subsidiary of GTE Corporation, for $1.03 billion in cash. The company financed the purchase consideration through its commercial paper program. GTE Government Systems Corporation is a leader in the advancement of command, control, communications and intelligence systems; electronic defense systems; communication switching; and information systems for defense, government and industry in the United States and abroad. The transaction has been accounted for under the purchase method of accounting. Operating results of the three business units are included with those of the company from the closing date. The excess of the purchase price over the estimated fair value of the net tangible assets acquired, approximately $840, has been recorded as goodwill. This allocation is based on preliminary estimates and will be finalized within one year from the date of acquisition. On November 10, 1998, the company acquired control of NASSCO Holdings Incorporated (NASSCO) for $369 in cash plus the obligation to discharge $46 in debt. NASSCO's wholly owned subsidiaries include National Steel and Shipbuilding Company, which is in the business of ship design, engineering, construction and repair for the United States military and various commercial customers, and NASSCO Funding Corporation, a finance subsidiary. The transaction has been accounted for under the purchase method of accounting. Operating results of NASSCO are included with those of the company from the closing date. The excess of the purchase price over the estimated fair value of the net tangible assets acquired, approximately $270, has been allocated to goodwill and contracts and programs acquired. This allocation is based on preliminary estimates and will be finalized during the fourth quarter of 1999. On August 19, 1998, Gulfstream completed the acquisition of K-C Aviation, Inc. for approximately $250 in cash. K-C Aviation was a leading provider of business aviation services and the largest independent completion center for business aircraft in North America. The transaction has been accounted for under the purchase method of accounting. Operating results of K-C Aviation are included with those of the company from the closing date. The excess of the purchase price over the fair value of the net tangible assets acquired, approximately $175, has been allocated to goodwill. 8 10 (E) Earnings Per Share Basic and diluted weighted average shares outstanding are as follows (in thousands):
Three months ended Nine months ended ------------------ ----------------- October 3 September 27 October 3 September 27 1999 1998 1999 1998 ---- ---- ---- ---- Basic 200,293 199,943 199,660 199,545 Diluted 202,612 202,515 201,963 202,715
Basic and diluted weighted average shares outstanding were derived in accordance with SFAS No. 128, which states that when a business combination is accounted for as a pooling of interests, earnings per share computations shall be based on the aggregate of the weighted average outstanding shares of the constituent businesses, adjusted to equivalent shares of the surviving business for all periods presented. The sum of the earnings per share for the first three quarters of 1999 differs from the earnings per share for the nine months ended October 3, 1999, due to the required method of computing the weighted average number of shares independently for the three- and nine-month periods. (F) Contracts in Process Contracts in process primarily represent costs and accrued profit related to government contracts and programs and consist of the following:
October 3 December 31 1999 1998 ------------- ------------- Net contract costs and estimated profits $ 552 $ 467 Other contract costs 858 485 ------------- ------------- $ 1,410 $ 952 ============= =============
Contract costs are net of advances and progress payments and include production costs and related overhead, such as general and administrative expenses. Other contract costs primarily represent amounts required to be recorded under generally accepted accounting principles that are not currently allocable to contracts, such as a portion of the company's estimated workers' compensation, other insurance-related assessments, postretirement benefits and environmental expenses. If the level of backlog in the future does not support the continued deferral of these costs, the profitability of the company's remaining contracts could be affected. Under the contractual arrangements by which progress payments are received, the U.S. government asserts that it has a security interest in the contracts in process identified with the related contracts. 9 11 (G) Inventories Inventories consist primarily of commercial aircraft components, as follows:
October 3 December 31 1999 1998 ------------- ------------- Work in process $ 458 $ 445 Raw materials 248 191 Pre-owned aircraft 306 150 Other 20 18 ------------- ------------- $ 1,032 $ 804 ============= =============
(H) Property, Plant and Equipment, Net Management has concluded not to make additional investments in its undeveloped high sulfur coal reserves given the current coal industry environment. As such, the company revalued these coal reserves and related equipment, resulting in a non-cash charge to earnings of approximately $60 (before-tax). (I) Intangible Assets Intangible assets resulting primarily from the company's acquisitions consist of the following:
October 3 December 31 1999 1998 ---------- ------------- Goodwill $ 2,119 $ 1,323 Contracts and programs acquired 504 461 ---------- ------------- $ 2,623 $ 1,784 ========== =============
Intangible assets are shown net of accumulated amortization of $179 and $130 at October 3, 1999, and December 31, 1998, respectively. Goodwill is amortized on a straight-line basis over 40 years. Contracts and programs acquired are amortized on a straight-line basis over periods ranging from 8 to 40 years. 10 12 (J) Debt Debt (excluding finance operations) consists of the following:
October 3 December 31 1999 1998 ------------- ------------- Commercial paper $ 1,149 $ - Term loans - 305 Senior notes 144 142 Notes payable - 56 Industrial development bonds 15 15 Other 9 12 ------------- ------------- 1,317 530 Less current portion 1,153 77 ------------- ------------- $ 164 $ 453 ============= =============
On July 27, 1999, the company began issuing commercial paper in anticipation of the acquisition of GTE Government Systems Corporation. As of October 3, 1999, the company had $1,156 par value discounted commercial paper outstanding at an average yield of approximately 5.46% with an average term of approximately 65 days. The company has available a $1 billion committed line of credit expiring in May 2002 and an available $400 committed line of credit expiring in December 2002, both of which back this commercial paper program. During 1999, the company repaid from available funds the term loans and notes payable. In connection therewith, the company recorded in the third quarter a one-time non-cash charge of $7 (before-tax) for the unamortized debt costs associated with these instruments. (K) Liabilities A summary of significant liabilities, by balance sheet caption, follows:
October 3 December 31 1999 1998 ------------- -------------- Customer deposits $ 550 $ 488 Workers' compensation 487 341 Retirement benefits 225 196 Salaries and wages 137 115 Advance payments - government contracts 100 139 Other 493 481 ------------- ------------- Other Current Liabilities $ 1,992 $ 1,760 ============= =============
11 13
October 3 December 31 1999 1998 ------------- ------------- Retirement benefits $ 462 $ 268 Accrued costs on disposed businesses 147 177 Coal mining related liabilities 67 73 Other 457 311 ------------- ------------- Other Liabilities $ 1,133 $ 829 ============= =============
(L) Income Taxes The company had a net deferred tax asset of $284 and $332 at October 3, 1999, and December 31, 1998, respectively, the current portion of which was $314 and $328, respectively, and was included in other current assets on the Consolidated Balance Sheet. Based on the level of projected earnings and current backlog, no material valuation allowance was required for the company's net deferred tax assets at October 3, 1999 and December 31, 1998. During the first quarter of 1999, the company and the U.S. Internal Revenue Service settled refund claims for research and experimentation tax credits for the years 1981 through 1989 for approximately $334 (including before-tax interest). The company recognized a benefit of $165 (net of amounts previously recorded in 1991 and 1992), or $.82 per diluted share, as a result of this settlement. In April 1999, the company received the $334 cash refund from the IRS related to this settlement. The IRS has completed its examination of General Dynamics' 1990 through 1993 consolidated federal income tax returns and Gulfstream's 1990 through 1994 consolidated federal income tax returns. Unresolved matters for these years have been protested to the IRS Appeals Division. A refund claim by General Dynamics for $78 (plus interest) for research and experimentation tax credits for the year 1990 will also be considered by the IRS Appeals Division. The IRS is currently examining General Dynamics' 1994 and 1995 consolidated federal income tax returns. The company has recorded liabilities for tax contingencies; therefore, resolution of open matters for these years is not expected to have a materially unfavorable impact on the company's results of operations or financial condition. (M) Commitments and Contingencies Litigation Claims made by and against the company regarding the development of the Navy's A-12 aircraft are discussed in Note N. On April 19, 1995, 101 then-current and former employees of General Dynamics' Convair Division in San Diego, California filed a six-count complaint in the Superior Court of California, County of San Diego, titled Argo, et al. v. General Dynamics, et al. In addition to General Dynamics, four of 12 14 Convair's then-current or former managers were also named as defendants. The plaintiffs alleged that the company interfered with their right to join an earlier class action lawsuit by, among other things, concealing its plans to close the Convair Division. On May 1, 1997, a jury rendered a verdict of $101 against the company and one of the defendants in favor of 97 of the plaintiffs. The jury awarded the plaintiffs a total of $1.8 in actual damages and $99 in punitive damages. The company and one of the defendants have appealed the judgment to the Court of Appeals of the State of California, Fourth Appellate District, Division One. On appeal, the company is seeking to have the judgment overturned in its entirety or, alternatively, a substantial reduction in the jury's punitive damage award. The company believes it has substantial legal defenses, but in any case, it believes the punitive damage award is excessive as a matter of law. Management currently believes the ultimate outcome will not have a material impact on the company's results of operations or financial condition. On July 13, 1995, General Dynamics Corporation was named as a defendant in a complaint filed in the Circuit Court of St. Louis County, Missouri, titled Hunt, et al. v. General Dynamics Corporation, et al. The complaint also names two insurance brokers, Lloyd Thompson, Ltd. and Willis Corroon Corporation of Missouri, as defendants. The plaintiffs are members of certain Lloyd's of London syndicates and British insurance companies who sold the company excess loss insurance policies covering the company's self-insured workers' compensation program at Electric Boat for four policy years, from July 1, 1988 to June 30, 1992. The plaintiffs allege that when procuring the policies the company and its brokers made misrepresentations to the plaintiffs and failed to disclose facts which were material to the risk. The plaintiffs also allege that the company has been negligent in its administration of workers' compensation claims. The plaintiffs seek rescission of the policies, a declaratory judgment that the policies are void, and compensatory damages in an unspecified amount. General Dynamics has counterclaimed, alleging that the plaintiffs have breached their insurance contracts by failing to pay claims. General Dynamics seeks a declaratory judgment that the policies are valid, actual damages, and payment of a penalty under a Missouri statute for the plaintiffs' vexatious and unreasonable failure to pay claims. The company does not expect that this case will have a material impact on the company's results of operations or financial condition. On August 16, 1996, plaintiffs HE Holdings, Inc., and Hughes Missile Systems Company filed an action against General Dynamics Corporation in the Superior Court for the State of California for the County of Los Angeles. In June 1998, plaintiffs filed a sixth amended complaint in which plaintiffs were redesignated as HE Holdings, Inc., now known as Raytheon Company, and Hughes Missile Systems Company, now known as Raytheon Missile Systems Company ("plaintiffs"). On September 8, 1998, plaintiffs filed a seventh amended complaint which is now pending. The seventh amended complaint alleges breach of contract, tortious interference with contract, conversion, fraud, and breach of the implied covenant of good faith and fair dealing, all with respect to the Asset Purchase Agreement dated May 8, 1992, for the sale of the company's missile business, various related leases and other alleged agreements. The seventh amended complaint seeks approximately $25 in compensatory damages, as well as punitive damages and declaratory relief. The company does not expect that the lawsuit will have a material impact on the company's results of operations or financial condition. The company is either a named defendant or a third-party defendant in certain multi-plaintiff tort cases pending in state or federal court in Arizona, captioned: Cordova, et al. v. Hughes Aircraft Co.; Lanier, et al. v. Hughes Aircraft Co., et al.; Yslava, et al. v. Hughes Aircraft Co.; and Arellano, et al. v. Hughes Aircraft Co. In these cases the plaintiffs allege that they suffered personal injuries and/or 13 15 property damage from chronic exposure to drinking water alleged to be contaminated with trace amounts of the industrial solvent trichloroethylene. The alleged source of the contamination was industrial facilities in and around the site now occupied by the Tucson International Airport (TIA) and U.S. Air Force Plant #44. In addition to the company, defendants are Hughes Aircraft Co. (now Raytheon), the Tucson Airport authority (TAA), the City of Tucson, (the City) and McDonnell Douglas Corp. (MDC). In Cordova, the company negotiated a settlement with all but four defendants, who have appealed the summary judgment entered against them. The company has reached an agreement to settle all the remaining cases and final settlement documents are being processed, including appropriate court orders. The company does not believe that these lawsuits will have a material impact on the company's results of operations or financial condition. In other litigation concerning the Tucson site, the company is a defendant in two cases brought in federal district court in Arizona by TAA and the City under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA). Plaintiffs seek reimbursement of CERCLA response costs and a declaration of the company's alleged liability with respect to soil and groundwater contamination at portions of the Tucson site. On September 30, 1998, the U.S. Environmental Protection Agency (U.S. EPA) issued a Special Notice Letter notifying the company that it was a potentially responsible party (PRP) with respect to contamination of soil and shallow groundwater on and near property currently occupied by the TIA. Other PRPs receiving a similar notice were the U.S. Air Force, TAA, MDC and the City. The company has reached an agreement to settle the litigation brought by TAA and the City and is awaiting court approval of a consent decree negotiated with the U.S. EPA in response to the Special Notice Letter. The company does not believe that these lawsuits or the pending consent decree will have a material impact on the company's results of operations or financial condition. The company is also a defendant in other lawsuits and claims and in other investigations of varying nature. The company believes its liabilities in these proceedings, in the aggregate, are not material to the company's results of operations or financial condition. Environmental The company is directly or indirectly involved in certain Superfund sites in which the company, along with other major U.S. corporations, has been designated a PRP by the U.S. EPA or a state environmental agency with respect to past shipments of hazardous waste to sites now requiring environmental cleanup. Based on a site by site analysis of the estimated quantity of waste contributed by the company relative to the estimated total quantity of waste, the company believes its liability at any individual site is not material. The company is also involved in the investigation, cleanup and remediation of various conditions at sites it currently or formerly owned or operated. The company measures its environmental exposure based on enacted laws and existing regulations and on the technology expected to be approved to complete the remediation effort. The estimated cost to perform each of the elements of the remediation effort is based on when those elements are expected to be performed. Where a reasonable basis for apportionment exists with other PRPs, the company estimates only its allowable share of the joint and several remediation liability for a site, taking into consideration the solvency of other participating PRPs. Based on a site by site analysis, the company believes it has adequate accruals for any liability it may incur arising from sites currently or formerly owned or operated at which there is a known environmental condition, or Superfund sites at which the company is a PRP. 14 16 Other In the ordinary course of business, the company has letters of credit and other similar instruments with financial institutions and insurance carriers aggregating approximately $660 at October 3, 1999. The company was also contingently liable for debt and lease guarantees and other arrangements aggregating up to a maximum of approximately $70 at October 3, 1999. (N) Termination of A-12 Program The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the Navy's new carrier-based Advanced Tactical Aircraft. The Navy terminated the company's A-12 aircraft contract for default. Both the company and McDonnell Douglas, now owned by the Boeing Company, (the contractors) were parties to the contract with the Navy, each had full responsibility to the Navy for performance under the contract, and both are jointly and severally liable for potential liabilities arising from the termination. As a consequence of the termination for default, the Navy demanded that the contractors repay $1,352 in unliquidated progress payments, but agreed to defer collection of the amount pending a decision by the U.S. Court of Federal Claims on the contractors' challenge to the termination for default, or a negotiated settlement. The contractors filed a complaint on June 7, 1991, in the U.S. Court of Federal Claims contesting the default termination. The suit, in effect, seeks to convert the termination for default to a termination for convenience of the U.S. government and seeks other legal relief. A trial on Count XVII of the complaint, which relates to the propriety of the process used in terminating the contract for default, was concluded in October 1993. In December 1994, the court issued an order vacating the termination for default. On December 19, 1995, following further proceedings, the court issued an order converting the termination for default to a termination for convenience. On March 31, 1998, a final judgment was entered in favor of the contractors for $1,200 plus interest. The U.S. government filed an appeal from the trial court's ruling in the U.S. Court of Appeals for the Federal Circuit. On July 1, 1999, the Court of Appeals found that the trial court erred in converting the termination for default to a termination for convenience without first determining whether a default existed. The Court of Appeals remanded the case for determination of whether the government's default termination was justified. The Court of Appeals stated that it was expressing no view on that issue, and it left the parties the opportunity to fully litigate that issue on remand. The company continues to believe that the government's default termination was improper, both as to process (the basis relied upon by the trial court) and because the contractors were not in default. The company continues to believe that at a full trial it will be able to demonstrate that the default termination was not justified and that the termination for default will be converted to a termination for convenience. If the company is successful in such a new trial, it could result in the same, a lesser or a greater award to the contractors. 15 17 Nonetheless, the parties have agreed to explore the possibility of an out-of-court settlement of the litigation. Warren Christopher, former U.S. Secretary of State, has agreed to serve as a neutral mediator. It is expected that the mediation process will be completed by the end of 1999. The parties have agreed that they will not comment on negotiations during the mediation process. The company has fully reserved the contracts in process balance associated with the A-12 program and has accrued the company's estimated termination liabilities and the liability associated with pursuing the litigation through the appeals process and remand proceedings. In the event that the contractors are ultimately found to have been in default under the A-12 contract and are required to repay all unliquidated progress payments, additional losses of approximately $675, plus interest, may be recognized by the company. The company believes the possibility of this result is remote. (O) Business Segment Information Management has chosen to organize and measure its business segments in accordance with several factors, including a combination of the nature of products and services offered, the nature of the production processes and the class of customer for the company's products. Operating segments are aggregated for reporting purposes consistent with these criteria. Management measures its segments' profit based primarily on operating earnings. As such, net interest, other income items and income taxes have not been allocated to the company's segments. For a further description of the company's business segments, see Management's Discussion and Analysis of the Results of Operations and Financial Condition. Summary financial information for each of the company's segments follows:
Three Months Ended ------------------ Net Sales Operating Earnings --------- ------------------ October 3 September 27 October 3 September 27 1999 1998 1999 1998 ------ ------ ------ ------ Marine Systems* $ 788 $ 594 $ 80 $ 66 Combat Systems 296 284 37 39 Information Systems & Technology* 354 226 30 18 Aerospace 704 626 128 104 Other 73 68 80 16 -- -- -- -- $2,215 $1,798 $ 355 $ 243 ====== ====== ====== ======
16 18
Nine Months Ended ----------------- Net Sales Operating Earnings --------- ------------------ October 3 September 27 October 3 September 27 1999 1998 1999 1998 ------ ------ ------ ------ Marine Systems* $2,360 $1,735 $ 256 $ 198 Combat Systems 892 917 106 120 Information Systems & Technology* 830 672 75 48 Aerospace 2,037 1,686 341 265 Other 185 180 97 32 ------ ------ ------ ------ $6,304 $5,190 $ 875 $ 663 ====== ====== ====== ======
Identifiable Assets ------------------- October 3 December 31 1999 1998 ------ ------ Marine Systems* $1,478 $1,250 Combat Systems 926 922 Information Systems & Technology* 2,553 1,250 Aerospace 1,924 1,537 Other** 390 406 Corporate*** 760 786 ------ ------ $8,031 $6,151 ====== ======
*As of January 1, 1999, management realigned its information technology resource businesses resulting in a different composition of reportable segments. Segment data for all periods presented has been restated to give recognition to the 1999 composition of reportable segments. ** Other includes assets of both of the company's finance operations. *** Corporate identifiable assets include cash and equivalents and marketable securities, deferred taxes, real estate held for development and net prepaid pension cost related to the company's commercial pension plan. 17 19 GENERAL DYNAMICS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 3, 1999 (Dollars in millions, except per share amounts) Forward-Looking Statements Management's Discussion and Analysis of the Results of Operations and Financial Condition contains forward-looking statements that are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "plans," "believes," "estimates," variations of these words and similar expressions are intended to identify forward-looking statements which include but are not limited to projections of revenues, earnings, segment performance, aircraft production and deliveries, cash flows, contract awards, aircraft backlog stability and the company's expectations regarding the upcoming year 2000. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation: the company's successful execution of internal performance plans; performance issues with key suppliers and subcontractors; the status or outcome of legal and/or regulatory proceedings; the status or outcome of labor negotiations; changing priorities or reductions in the U.S. government defense budget; termination of government contracts due to unilateral government action; and the timing and occurrence (or non-occurrence) of circumstances beyond the company's control. Business Segments The company operates in four primary business segments: Marine Systems, Combat Systems, Information Systems and Technology and Aerospace. The company also owns coal mining and aggregates operations in the Midwest, and a leasing operation for liquefied natural gas tankers, which are classified as Other. The following table sets forth the net sales and operating earnings by business segment for the three- and nine-month periods ended October 3, 1999, and September 27, 1998: 18 20
- ---------------------------------------------------------------------------------------------------------------------------------- Three-Month Period Ended Nine-Month Period Ended - ---------------------------------------------------------------------------------------------------------------------------------- October 3 September 27 Increase/ October 3 September 27 Increase/ 1999 1998 (Decrease) 1999 1998 (Decrease) - ---------------------------------------------------------------------------------------------------------------------------------- NET SALES: - ---------------------------------------------------------------------------------------------------------------------------------- Marine Systems $ 788 $ 594 $ 194 $ 2,360 $ 1,735 $ 625 Combat Systems 296 284 12 892 917 (25) Information Systems & Technology 354 226 128 830 672 158 Aerospace 704 626 78 2,037 1,686 351 Other 73 68 5 185 180 5 - ---------------------------------------------------------------------------------------------------------------------------------- $ 2,215 $ 1,798 $ 417 $ 6,304 $ 5,190 $ 1,114 - ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS: - ---------------------------------------------------------------------------------------------------------------------------------- Marine Systems $ 80 $ 66 $ 14 $ 256 $ 198 $ 58 Combat Systems 37 39 (2) 106 120 (14) Information Systems & Technology 30 18 12 75 48 27 Aerospace 128 104 24 341 265 76 Other 80 16 64 97 32 65 - ---------------------------------------------------------------------------------------------------------------------------------- $ 355 $ 243 $ 112 $ 875 $ 663 $ 212 - ----------------------------------------------------------------------------------------------------------------------------------
Marine Systems Results of Operations Net sales increased during the three- and nine-month periods due primarily to the acquisition of NASSCO Holdings Incorporated (NASSCO), whose wholly owned subsidiaries include National Steel and Shipbuilding Company, on November 10, 1998, as well as increased activity on the Virginia-class submarine and DD 21 program. Operating earnings increased during the three- and nine-month periods due primarily to the aforementioned acquisition and to an earnings rate increase on the Arleigh Burke class destroyer (DDG 51) program in the fourth quarter of 1998. As of January 1, 1999, in order to align the company's information technology resources, management moved its Defense Systems operating unit from the Marine Systems segment to the Information Systems and Technology segment. Data for the three- and nine-month periods ended September 27, 1998, has been restated to give recognition to the current composition of reportable segments. 19 21 Combat Systems Results of Operations Net sales increased and operating earnings decreased slightly during the three-month period due to the contrast in maturity of programs year over year. Net sales and operating earnings decreased during the nine-month period due primarily to the completion of production on the Single Channel Ground and Airborne Radio System for the U.S. Army and to the treatment of the results of the company's ammunition production facility. Previously a consolidated subsidiary, the company's Milan Army Ammunition Plant is now part of an unconsolidated joint venture, American Ordnance LLC. Information Systems and Technology Results of Operations Net sales increased during the three- and nine-month periods due primarily to the acquisition of three business units of GTE's Government Systems Corporation on September 1, 1999. Operating earnings increased during the three- and nine-month periods due primarily to increased volume for commercial undersea fiber-optic communications equipment. In the first quarter of 1999, as previously mentioned, management transitioned the Defense Systems' business to the Information Systems and Technology segment from the Marine Systems segment. Data for the three- and nine-month periods ended September 27, 1998, has been restated to give recognition to the current composition of reportable segments. Aerospace Results of Operations Net sales and operating earnings increased during the three- and nine- month periods due primarily to the increase in new aircraft and completion deliveries in 1999. During the three- and nine-month periods, aircraft deliveries increased by two and eight, respectively, and completions increased by two and sixteen, respectively, over the same periods in 1998. Other Results of Operations Operating earnings increased during the three- and nine-month periods due to several non-recurring events during the quarter. In connection with the acquisition of Gulfstream, General Dynamics merged the two companies' commercial pension plans. As a result of the merger of these plans, the company recognized previously deferred gains on General Dynamics commercial pension plan, totaling $126 (before-tax). Additionally, management has concluded not to make additional investments in its undeveloped high sulfur coal reserves given the current coal industry environment. As such, the company revalued these coal reserves and related equipment, resulting in a non-cash charge to earnings of approximately $60 (before-tax). 20 22 Backlog The following table details the backlog of each business segment as calculated at October 3, 1999, and December 31, 1998:
October 3 December 31 1999 1998 --------- ----------- Marine Systems $10,799 $11,565 Combat Systems 1,266 1,579 Information Systems and Technology 1,804 892 Aerospace 3,548 4,302 Other 512 562 ------- ----------- Total Backlog $17,929 $18,900 ======= =========== Funded Backlog $10,499 $10,565 ======= ===========
Total backlog represents the estimated remaining sales value of work to be performed under firm contracts or aircraft to be delivered, options for additional Gulfstream aircraft and amounts for long-term coal contracts. Funded backlog for government programs represents the portion of total backlog that has been appropriated by Congress and funded by the procuring agency. To the extent backlog has not been funded, there is no assurance that congressional appropriations or agency allotments will be forthcoming. As previously mentioned, data at December 31, 1998, has been restated to give recognition to the current composition of reportable segments. Additional Financial Information Other, Net In the third quarter of 1999 in connection with the acquisition of Gulfstream, the company recorded a charge to earnings of $36 (before-tax) for related costs, consisting of investment banking, legal, bank fees, accounting, printing, and regulatory filing fees. Additionally, in connection with the repayment of certain of Gulfstream's debt instruments, the company recorded in the third quarter of 1999 a one-time non-cash charge of $7 (before-tax) for the unamortized debt costs associated with these instruments. Provision for Income Taxes During the first quarter of 1999, the company and the U.S. Internal Revenue Service settled refund claims for research and experimentation tax credits for the years 1981 through 1989 for approximately $334 (including before-tax interest). The company recognized a benefit of $165 (net of amounts previously recorded in 1991 and 1992), or $.82 per diluted share, as a result of this settlement. In April 1999, the company received the $334 cash refund from the IRS related to this settlement. Tax on the interest totaling approximately $65 will be paid during 1999 with the company's regular quarterly tax payments. For further discussion of this and other tax matters, as well as a discussion of the net deferred tax asset, see Note L to the Consolidated Financial Statements. 21 23 Environmental Matters and Other Contingencies For a discussion of environmental matters and other contingencies, see Notes M and N to the Consolidated Financial Statements. The company's liability, in the aggregate, with respect to these matters, is not expected to be material to the company's results of operations or financial condition. Year 2000 The company has developed an internal Year 2000 compliance program (Y2K Project), which is focusing on three major areas of assessment, project planning and remediation with respect to Year 2000 issues (the inability of date- sensitive software and equipment to properly recognize dates beyond 1999): (1) information technology systems; (2) deliverable software (alone or as a component of another product); and (3) facilities and embedded processors. The company is working with its full-time information technology systems partner on the project. The assessment, project planning and remediation phases of the Y2K Project are essentially complete. Validation testing occurs as systems are remediated and is substantially complete. The company generally develops its deliverable software to conform with customer specifications. The company has completed the review of most of its customer contracts and specifications to determine whether any Year 2000 issues exist. Remediation efforts have been undertaken where requested, required and/or funded by the customer. Management believes the company will complete the Y2K Project on schedule and that the costs to implement will not materially impact results of operations or financial condition, as most of these costs are expected to be allowable under the company's U.S. government contracts. The company believes its total Y2K Project costs will not exceed $44. The company has made inquiries of substantially all third parties with whom it has material business relationships to determine if they have Year 2000 issues. To date, the company has not been made aware of any Year 2000 issues with respect to these third parties that would be expected to materially and adversely affect the company. There can be no assurance, however, that these third parties have been or will be successful in identifying or addressing their Year 2000 issues. The implementation schedule, projected costs and beliefs regarding the company's Year 2000 issues detailed above are based on management's best estimates utilizing assumptions as to future events. There can be no assurance that these expectations will be realized. Based on the status of the Y2K Project and third-party surveys, however, the company does not believe there are any material risks to the company related to Year 2000 issues. The company believes its worst case Year 2000 scenario, if realized, would involve a brief slowdown of production at one or more business units which would not be expected to have a material adverse effect on financial condition or results of operations. The company engages in project reviews and internal audit activities designed to ensure Year 2000 readiness. The company has developed business continuity plans for Year 2000 and expects to test these plans during November 1999. New Accounting Standards Effective January 1, 1999, the company adopted the provisions of Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance to aid in the determination of when liabilities should be recognized for guaranty-fund and other insurance-related assessments, as well as requirements for the measurement of the liability and 22 24 related recoverable asset. As these costs are recoverable under the company's contracts and existing backlog, the adoption of the SOP did not have a material impact on the company's results of operations or financial condition. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 137 issued in June 1999 deferred the effective date of SFAS 133 by one year. As such, the company is now required to adopt the provisions of the standard during the first quarter of 2001. Because of the company's minimal use of derivatives, it does not expect that the adoption of the new standard will have a material impact on the results of operations or financial condition. Financial Condition Operating Activities Cash flows from continuing operations increased this year over last year due primarily to the cash refund the company received from the IRS related to the settlement discussed above in "Provision for Income Taxes". Excluding the cash refund and related tax effect, cash flows from continuing operations decreased this year over last year due primarily to a working capital buildup to support growth in the company's sales of commercial undersea communications equipment, as well as to the timing of pre-owned aircraft taken as trade-ins on new aircraft sales, but which have not yet been resold. The company expects to continue to generate funds from operations in excess of its short- and long-term liquidity needs. Investing Activities On July 30, 1999, the company acquired Gulfstream through a merger of a subsidiary of the company into Gulfstream. As a result, the holders of Gulfstream common stock became entitled to receive one share of the company's common stock for each Gulfstream share. The common stock of Gulfstream was traded on the New York Stock Exchange through the close of business on July 30, 1999, at which time there were 72,165,645 shares of Gulfstream common stock outstanding. An additional 4.1 million shares have been reserved for issuance upon the exercise of stock options which, prior to the acquisition, had been options to purchase Gulfstream common stock. Gulfstream is a leading designer, developer, manufacturer and marketer of advanced business jet aircraft. The acquisition was accounted for as a pooling of interests, and accordingly, all data for periods prior to the combination have been restated to include the accounts and results of operations of Gulfstream. On September 1, 1999, the company completed the acquisition of three business units comprising GTE Government Systems Corporation, a subsidiary of GTE Corporation, for $1.03 billion in cash. GTE Government Systems Corporation is a leader in the advancement of command, control, communications and intelligence systems; electronic defense systems; communication switching; and information systems for defense, government and industry in the United States and abroad. The company financed the 23 25 purchase consideration through the issuance of commercial paper. As of October 3, 1999, the company had approximately $1,100 commercial paper outstanding at an average yield of approximately 5.46% with an average term of approximately 65 days. The company expects to reissue commercial paper as it matures, and has the option to extend the term up to 270 days. On May 3, 1999, the company paid from available funds the remaining fixed purchase consideration of $51 in cash for three individual stockholders' share of NASSCO common stock. The company began construction on its facility modernization project at its Bath Iron Works shipyard in late 1998. The company anticipates investing a total of approximately $200 through 2000, with approximately $70 expected to be expended during 1999. Financing Activities During the third quarter of 1999, the company repaid from its available funds approximately $325 of Gulfstream's debt instruments. On June 23, 1999, the company's board of directors formally rescinded management's authority to repurchase shares of the company's common stock on the open market. On June 25, 1999, Gulfstream's board of directors formally rescinded management's authority to repurchase shares of its common stock on the open market. On March 3, 1999, the company's board of directors declared an increased regular quarterly dividend of $.24 per share. The company has available a $1 billion committed line of credit expiring in May 2002 and an available $400 committed line of credit expiring in December 2002, both of which back the company's commercial paper program. These credit facilities contain minimum net worth requirements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes with respect to this item from the disclosure included in Management's Discussion and Analysis filed as Exhibit 99.1 to the company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 11, 1999, and incorporated herein by reference. 24 26 PART II GENERAL DYNAMICS CORPORATION OTHER INFORMATION October 3, 1999 Item 1. Legal Proceedings Reference is made to Note M, Commitments and Contingencies, to the Consolidated Financial Statements in Part I, for statements relevant to activities in the quarter covering certain litigation to which the company is a party. Item 4. Submission of Matters to a Vote of Security Holders (a) A Special Meeting of Shareholders of the company, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, was held on July 30,1999. (b) A brief discussion of each matter voted upon at the Special Meeting and the number of votes cast is as follows:
Matter Votes Cast --------------------------------------------------------------------------------- For Against Abstain --- ------- ------- Amendment to Charter Increasing No. of Authorized Shares of Common Stock to 300,000,000 107,896,147 1,053,497 333,287 Issuance of Shares Pursuant to Agreement and Plan of Merger 107,623,501 1,195,525 463,905
25 27 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K On August 17, 1999, the company reported to the Securities and Exchange Commission under Item 5, Other Events, that on July 30, 1999, the company acquired Gulfstream Aerospace Corporation (Gulfstream) through a merger of a subsidiary of the company into Gulfstream. Included in the filing under Item 7, Financial Statements and Exhibits, were the following: (a) Unaudited Supplemental Consolidated Financial Statements of General Dynamics Corporation for the quarterly period ended July 4, 1999 (as restated to reflect the acquisition of Gulfstream on July 30, 1999) and (b) Management's Discussion and Analysis of General Dynamics Corporation for the quarterly period ended July 4, 1999 (as restated to reflect the acquisition of Gulfstream on July 30, 1999). On September 13, 1999, the company reported to the Securities and Exchange Commission under Item 5, Other Events, combined net sales, net earnings and per share data of the company and Gulfstream for the month ended August 29, 1999. The company also reported the completion of the acquisition of GTE Government Systems Corporation on September 1, 1999 and management's reevaluation of future investment in its coal operations. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENERAL DYNAMICS CORPORATION by /s/John W. Schwartz ------------------------------------------------ John W. Schwartz Vice President and Controller (Authorized Officer and Chief Accounting Officer) Dated: November 12, 1999 26 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GENERAL DYNAMICS CORPORATION CONSOLIDATED BALANCE SHEET AS OF OCTOBER 3, 1999, AND THE RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED OCTOBER 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1999 JAN-01-1999 OCT-03-1999 69 0 841 0 2,442 3,744 2,268 (1,228) 8,031 3,557 164 0 0 495 2,532 8,031 6,304 6,304 5,429 5,429 0 0 33 819 (137) 682 0 0 0 682 3.42 3.38 ON JULY 30, 1999 GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF INTERESTS TRANSACTION. AS SUCH, THE RESULTS OF OPERATIONS, AS SUBMITTED ON THIS SCHEDULE, INCLUDE THE RESULTS OF GULFSTREAM FOR THE FULL NINE-MONTH PERIOD.
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